Marriott's Brand Advantage Continues to Strengthen

We believe the two main takeaways from

We find little reason to alter our long-held view that Marriott’s brand advantage will continue to expand in the next several years, as its second-quarter room pipeline grew to 440,000, up from 420,000, representing a solid 36% of its 1.2 million existing room base. Further, the company’s pipeline constitutes one third and one fourth of U.S. and international industry rooms under construction, respectively, while above its roughly 15% and 4% existing domestic and foreign share, respectively. Therefore, we plan to maintain our roughly 6% average annual unit growth over the next five years, well above average historical industry supply rates of 2%.

Marriott’s North American (65% of total rooms) revPAR growth slowed in the second quarter to 0.9% from 3.1% seen last quarter, due to calendar shifts (Easter and July 4). Additionally, management essentially lowered revPAR for the rest of 2017 in the region to 1%-2% from 1%-3% prior, on what we believe is some pause of U.S. corporate spend due to political policy uncertainty, which was highlighted on narrow-moat Hilton’s earnings call last week. As a result, we plan to reduce our systemwide revPAR growth estimate toward 2% from 2.8%, which compares with Marriott’s unchanged global revPAR forecast of 1%-3% for 2017.

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